Mind the gap

BY Richard Summerfield

One need only pick up a newspaper to see the importance of developing a robust and comprehensive cyber security programme. Data breaches have, in recent years, emerged as one of the most pressing corporate issues of our time. In light of this rising threat,  many companies are pouring millions of dollars and thousands of manpower hours into shoring up their cyber defences.

However, an ‘accountability gap’ is opening up in the world of cyber security, suggests Tanium and NASDAQ in a new report. According to the study, which surveyed 1530 non-executive directors, c-level executives, chief information officers and chief information security officers across the US, the UK, Germany, Japan, Denmark, Norway, Sweden and Finland, 40 percent of executives believe that they feel no responsibility for the impact any cyber attack might have.

Furthermore the Tanium/NASDAQ survey suggests that among the most vulnerable companies, 98 percent of business leaders are not confident in their organisation’s ability to monitor all devices and users at all times. More than 90 percent of respondents said that they are unable to read a cyber security report and are not prepared to handle a major attack. Further, only 10 percent of those surveyed agreed that they are regularly updated with information about the types of cyber security threats to their business.

Worryingly, only 9 percent of executives claimed that their systems were updated regularly in response to new cyber threats. Given the speed, agility and inventiveness demonstrated by cyber criminals in recent years, this inability or unwillingness to adapt is an alarming revelation in a business landscape pockmarked with risk.

Cyber crime, as the scandal around the ‘Panama Papers’ has recently reiterated, is a looming, ever present threat. Companies must do more to address their yawning accountability gap, before they find themselves in the headlines.

Report: The Accountability Gap: Cybersecurity & Building a Culture of Responsibility

Tax changes scupper record deal

BY Richard Summerfield

After several years of bluster and two rounds of legislative measures, the Obama administration had, until very recently, failed wholly to put a stop to tax ‘inversions’. Indeed, the number of US companies inverting has been rising, with 2015 bearing witness to a record number of corporate inversions.

A typical inversion sees US companies acquiring an overseas rival, redomiciling to that company's country and adopting its lower-tax level. The practice has drawn the ire of both sides of the aisle in Washington and has been decried as one of the “most insidious tax loopholes out there” by President Obama.

However, this week the US Treasury finally announced a third tranche of measures which may actually curb inversion transactions. To that end, the new measures have already claimed a major scalp, causing the cancellation of the $160bn merger between US pharmaceutical manufacturer Pfizer Inc and Irish firm Allergan Plc.

“Pfizer approached this transaction from a position of strength and viewed the potential combination as an accelerator of existing strategies,” said Ian Read, chairman and chief executive of Pfizer. “We remain focused on continuing to enhance the value of our innovative and established businesses. Our most recent product launches, including Prevnar 13 in Adults, Ibrance, Eliquis and Xeljanz, have been well-received in the market, and we believe our late stage pipeline has several attractive commercial opportunities with high potential across several therapeutic areas. We also maintain the financial strength and flexibility to pursue attractive business development and other shareholder friendly capital allocation opportunities.”

Pfizer would have stood to cut its tax bill by around $1bn annually by redomiciling in Ireland; however, now that the controversial merger has collapsed it will be required to pay Allergan $150m to reimburse the firm for expenses incurred during the transaction.

The Treasury hopes its measures tackle what it calls “serial inverters”, or foreign companies that have rapidly acquired multiple US companies. It will do this by limiting companies’ ability to participate in an inversion deal if they have taken part in one in the previous three years. Allergan, for the record, has been party to a number of inversion deals in that time period. The Treasury has also set out to reduce the tax advantages of inversions by curbing 'earnings stripping' — the use of intercompany loans to reduce US tax bills.

Now that the Allergan deal is dead in the water, Pfizer said 2016 will be a year of reflection. The company is contemplating spinning off its multitude of generic medicines into a separate businesses. Though the Allergan deal was due to delay that decision until 2019, the collapse of the merger will hasten Pfizer.

“We plan to make a decision about whether to pursue a potential separation of our innovative and established businesses by no later than the end of 2016, consistent with our original timeframe for the decision prior to the announcement of the potential Allergan transaction,” added Mr Read. “As always, we remain committed to enhancing shareholder value.”

News: Pfizer Announces Termination Of Proposed Combination With Allergan

Optimism has fallen: new survey highlights sharp slump in financial services sentiment

BY Fraser Tennant

Optimism in the financial services sector has slumped alarmingly in the past five years, with firms citing market instability, sector competition and macroeconomic uncertainty as their top three challenges, according to the new CBI/PwC Financial Services Survey published this week.

The survey, a quarterly analysis of 104 financial services firms, reveals that banking and investment management respondents in particular had seen the sharpest slump in sentiment, while optimism across building societies and in the insurance sector was found to be broadly flat.

Drilling down, the survey shows that optimism in the financial services sector has fallen at its fastest pace for over four years, with 14 percent of firms more optimistic, but 35 percent less so, giving a balance of minus 21 percent. In comparison, the balance was 24 percent in December 2011.

“Concerns over China and a volatile start to the year for markets, alongside uncertainty about a possible Brexit, have created a perfect storm to dampen optimism in financial services,” said Rain Newton-Smith, the director for economics at the CBI. “As we know from talking to CBI members, now that the referendum date has been set some investment decisions have been put on hold by some firms, though this is not widespread.

“Investment intentions for IT remain resilient, but spending plans are being scaled back in other areas. Investments are increasingly motivated by the need to promote efficiency, while uncertainty about demand appears to be holding additional investment spending back.”

However, despite the findings, the survey does indicate that business volumes have continued to expand at a solid pace, and profitability has improved, albeit at the slowest pace for two years. Overall, business volumes rose at a decent pace, with 44 percent of firms stating that volumes were up, 18 percent saying they were down, giving a balance of +26 percent.

The survey also notes an increase in staffing levels in financial services during the last quarter, though this uptick is expected to flatline in the next three months, with insurance and building society sector staff increases being offset by losses within the banking fraternity.

“The lack of opportunities to generate revenue has shifted the focus of financial services companies to how they make their business models more efficient or effective - no easy task in such an unpredictable climate,” said Kevin Burrowes, UK financial services leader at PwC. “Despite the pessimistic mood in the sector, it is very encouraging to see that many financial services organisations are planning to up their game around talent attraction and diversity."

News: ‘Perfect storm’ of events dampens optimism among financial services firms

Global M&A 1Q 2016 preliminary figures released

BY Fraser Tennant

Developments and trends in the global M&A space for the first quarter of 2016 are at the heart of a preliminary report published this week by Dealogic.

In ‘Global M&A Review: First Quarter 2016’, Dealogic reveals that the total M&A value seen in 1Q 2016 was $701.5bn – a 25 percent year-on-year drop on the previous three quarters which saw $1 trillion volume.

In terms of the key regional headline data, the Dealogic review of global M&A in 1Q 2016 reports that US targeted M&A volume was $248.2bn (accounting for 36 percent of global M&A volume) – down 40 percent year-on-year and the lowest 1Q share since the 30 percent seen in 2012. Turning to Europe, the Middle East and Africa (EMEA), targeted M&A volume was $217.9bn – 31 percent of global M&A and the highest quarterly share since 2Q 2013.

Cross-border activity accounted for a quarterly record high of 43 percent share of global M&A, some $302.6bn, falling just short of the record $314.6bn seen in 1Q 2015. China outbound M&A volume was $104.3bn, again, just short of the annual record high of $106.4bn set last year.

Leading the M&A advisor rankings is Goldman Sachs with transactions totalling £214.2bn, followed by JPMorgan on $153.1bn and UBS with $98.7bn.

Technology was the top sector with a total of $100.3bn, the second highest 1Q volume on record behind 1Q 2000 ($190.8bn). Conversely, the healthcare sector saw the biggest drop among the top five sectors in 1Q M&A volume, down 56 percent year-on-year to $58.7bn. 

The top 10 announced M&A transactions in the quarter were led by China National Chemical Corp’s  $48bn acquisition of Syngenta in February. This was the largest agribusiness deal and China outbound M&A deal on record. A distant second on the list is the $16.6bn acquisition of Tyco International by Johnson Controls, the largest telecom deal in the US since the Time Warner/Charter Communications transaction in May 2015.

The final 1Q 2016 M&A figures are scheduled to be released by Dealogic in early April.

Report: Global M&A Review - First Quarter 2016

Landmark year in global renewable energy investment

BY Richard Summerfield

Global investment in renewable energy reached record levels in 2015, according to a new report from the United Nations.

Renewable energy investment climbed to $286bn last year, a 3 percent increase on the previous record set in 2011, and more than double the $130bn invested in coal and gas power stations over the same period.

The report – Global Trends in Renewable Energy Investment 2016 – is the tenth edition of the UN Environment Program’s annual publication and has been launched by the Frankfurt School-UNEP Collaborating Centre for Climate & Sustainable Energy Finance and Bloomberg New Energy Finance (BNEF).

“Global investment in renewables capacity hit a new record in 2015, far outpacing that in fossil fuel generating capacity despite falling oil, gas and coal prices,” said Michael Liebreich, chairman of the advisory board at BNEF. “It has broadened out to a wider and wider array of developing countries, helped by sharply reduced costs and by the benefits of local power production over reliance on imported commodities.”

One of the most notable features of the of the UN backed report is that while global investment in solar, wind and other renewable sources of energy has climbed considerably, for the first time ever the developing world accounted for the majority of investments. According to UNEP’s data, renewable investment in developing countries climbed 19 percent to $156bn in 2015, $103bn of which was invested in China alone. “Renewables are becoming ever more central to our low-carbon lifestyles, and the record-setting investments in 2015 are further proof of this trend,” said UNEP Executive Director Achim Steiner.

However, the growth in developing economy investment contrasts with a fall in similar investment in the developed world. Though US investments rose 19 percent to $44bn, investments in developed countries fell 8 percent to $130bn. Investment in Europe was down 21 percent, from $62bn in 2014 to $48.8bn in 2015, the continent’s lowest figure for nine years, despite record investments in offshore wind projects. Japanese investment in renewable energy was much the same as the previous year, at $36.2bn.

There has been good progress made in renewable energy investment and it is clear that some structural changes to the energy space are underway; yet there is still a great deal of work to be done. Renewables still only accounted for one-tenth of global power generation, the majority of which comes from coal and natural gas.

Report: Global Trends in Renewable Energy Investment 2016